The Helena Water consortium closed financing for the A$306 million ($326.5 million) Mundaring water treatment plant concession on 26 July 2011. The deal is the first water public- private partnership in the state of Western Australia and did not need a syndication guarantee from the state, despite bank market uncertainty and the precedent of Victoria’s Aquasure financing. It is also notable for featuring European, rather than Australian, lenders, at a time when the latter might be expected to have a pricing advantage.

The construction plus 35-year design-build-finance-operate- maintain concession involves building the Mundaring water treatment plant, with an initial peak capacity of 160 million litres per day and the ability to be expanded to up to 250 million litres per day by 2034. The output of the plant will supply the agricultural and mining demand from the growing population of the region north of Perth. The owners of the project’s special purpose vehicle, Helena Water Finance, are Lloyds (49.9%), Acciona Agua (25.05%) and Trility (formerly United Utilities Australia, 25.05%).

The project debt is split between a A$257.3 million construction term loan and a A$48.9 million equity bridge loan. Both tranches have a 2.3-year tenor but the construction loan will convert to seven-year mini-perm after construction is complete, while the bridge will be repaid with sponsor equity. The debt is believed to have priced at between 150bp and 255bp over BBSY. Bank of Tokyo-Mitsubishi UFJ, BBVA, BNP Paribas and WestLB, which are all relationship banks to the sponsors, were the deal’s mandated lead arrangers.

The lenders executed swaps – one each on the equity bridge, construction and term loans – to fix the interest rate over the debt’s duration. The sponsors are likely to refinance the debt before it matures, though the term debt swap goes out to an impressive 35 years with a two-year tail before the end of the concession, eliminating some of the risks associated with base rate movements. But the comparatively short tenor on the term debt indicates that the Eurozone crisis has reduced one of the major selling points of European lenders over their Australian rivals.

The Victorian government provided a syndication guarantee on A$1.7 billion of the $3.7 billion debt financing for the Aquasure project, which closed in September 2009, and whose sponsors are Ondeo Degremont, Suez Environment, Macquarie and Thiess. But Aquasure closed in the unsettled post-Lehman market, and other governments do not – yet – have to make such drastic commitments.

The Water Corporation of Western Australia will make monthly fixed availability payments as well as variable payments related to the volume of water. Both payments will increase when the plant is expanded, in direct relation to the additional investment and water treatment capacity.

“Closing the financing at this scale and in this market without explicit state government backing was quite an achievement,” said Simon Hatcher, managing director Australia at Acciona Agua and consortium commercial director for the project. He noted that refinancing risk and the continued weakness in global capital markets were two major issues the consortium faced reaching financial close.

The state selected Helena Water as preferred bidder in February 2011. The consortium beat Aquality, which included Degremont, McConnell Dowell, Abi Group, KBR, WorleyParsons and Commonwealth Bank of Australia, for the concession. The grantor shortlisted two bidders in July 2010 from seven that submitted expressions of interest in May 2010 May. Other interested firms included AJ Lucas, Marubeni and Siemens; Leighton, McMahon and PwC; and Macquarie, John Holland, Tecnicas Reunidas and Valoriza Agua. The state released the request for EOIs in February 2010.

The Water Corporation is expanding its work with the private sector. While it has yet to launch any additional PPPs, it has used design-build-operate-maintain contracts with Degremont for the Perth seawater desalination plant and a Tecnicas Reunidas/Valoriza Agua consortium for the Southern seawater desalination plant. The operations and maintenance portion of those contracts are for 25 years.

Based on the success of the Mundaring deal, Western Australia is expected to use similar contracts, as well as long-term concessions, for future water projects. Acciona Agua plans to pursue additional water concessions in Australia, according to Hatcher. The project agreement for Mundaring includes provisions covering any future privatisation of the state’s water assets over the term of the concession, though no such proposals currently exist.

An Acciona Agua (50%) and Trility (50%) joint venture is the engineering, procurement and construction contractor, and has signed a civil works subcontract with Brookfield Multiplex Engineering. Construction began in October 2011 and is scheduled to be complete by the end of this year. Another Acciona/Trility joint venture, with the same shareholding structure as the EPC contractor, operates the plant.

Helena Water Finance
STATUS: Closed 26 July 2011
SIZE: A$306 million ($326.5 million)
LOCATION: Perth, Western Australia
DESCRIPTION: 37-year concession of the initially 160 million litres per day capacity Mundaring water treatment plant
GRANTOR: Water Corporation of Western Australia
SPONSORS: Lloyds (49.9%), Acciona Agua (25.05%) and Trility (formerly United Utilities Australia, 25.05%)
EQUITY: A$48.9 million (funded by bridge facility)
DEBT: A$257.3 million construction term loan and A$48.9 million equity bridge facility
MANDATED LEAD ARRANGERS: Bank of Tokyo-Mitsubishi UFJ, BBVA, BNP Paribas and WestLB
SPONSORS FINANCIAL ADVISER: Royal Bank of Scotland
GRANTOR FINANCIAL ADVISER: Ernst & Young
SPONSORS LEGAL Blake Dawson
LENDERS LEGAL Gilbert & Tobin GRANTORS LEGAL Corrs Chambers Westgarth EPC CONTRACTOR Acciona Agua (50%) and Trility (50%) joint venture, with Brookfield Multiplex Engineering as subcontractor
TAX & ACCOUNTING ADVISER: PwC
AUDIT & FINANCIAL MODELER: Mercer
GRANTOR TECHNICAL ADVISER: CH2M Hill
INDEPENDENT TECHNICAL ADVISER: Aurecon
INSURANCE ADVISER: Professional Risk Solutions
ENVIRONMENTAL ADVISER: Strategen
GRANTOR PROBITY AUDITOR: Braxford